While the overall costs of agricultural protection and subsidies in the
rich countries fully justify their dismantling, the policy discourse on
the subject has suffered from deliberate obfuscation, with political
correctness rather than economic logic driving it.

The argument that dominates the media waves is that the rich-country
subsidies and tariffs, especially those applied by the European Union (EU),
hurt the poorest countries most. The subsidies depress the world prices of
the goods exported by these countries and tariffs deprive them of the
access to the rich country markets.

This plausible-sounding but economically incorrect argument probably
originated in the pronouncements of the World Bank leadership at the turn
of the millennium. But it is now widely accepted. The result is that one
can scarcely distinguish the view of such mainstream institutions as the
World Bank, IMF and Organisation of Economic Cooperation and Development (OECD)
and of the straight-shooting newspapers such as the Financial Times and
The Economist from that of the United Nations, South-South Centre and a
host of anti-globalisation NGOs, which instinctively blame the rich
countries for the ills of the poor countries.

Thus, a joint "declaration" by the heads of the IMF, OECD and
World Bank issued on the eve of the WTO meeting at Cancun began by arguing
how important was agriculture to the well-being of the poor countries and
went on assert: "Yet, developed countries impose tariffs on
agriculture that are eight to 10 times higher than on industrial
goods.Many continue to use various forms of export subsidies that drive
down world prices and take markets away from farmers in poorer
countries." [Emphasis added.]

Similar assertions can be found in The Economist, UN Human Development
Report and the publications of NGOs Oxfam and Third World Network. The
economics Nobel Laureate Joseph Stiglitz is equally supportive of this
view in his widely circulated book Globalisation and its Discontents.

There is little doubt that some developing countries, mainly those
belonging to the Cairns Group, namely, Argentina, Brazil, Chile, Colombia,
Costa Rica, Indonesia, Malaysia, Philippines, South Africa, Thailand and
Uruguay, will reap substantial benefits from rich country liberalisation
in agriculture. But these are not poor countries. The truly poor countries
are those classified as the least developed countries (LDCs) by the UN.
Ironically, these countries stand to lose from liberalisation. Let me
explain why.

Under the 'everything but arms' (EBA) initiative of the European Union
(EU), LDCs can freely sell their exports at the internal EU price. In
effect, the EBA gives the LDC sellers the same protection the EU producers
enjoy under the tariff-subsidy regime currently. This protection to the
LDC exporters will end with liberalisation.

Moreover, protection and subsidies by the rich countries depresses the
world prices. As importers, LDCs have access to these low prices. Once the
subsidies and protection are eliminated, the world prices would rise and
hurt the importers. For many LDCs that are large importers of agricultural
products, especially food, these losses could be substantial. With a
handful of exceptions, the LDCs are net food importers. A large majority
are even net agricultural importers.

Some may argue that the importing LDCs need not necessarily lose since
they may turn into exporters in a regime that is free of interventions.
But this is a logically incorrect argument. Under the current regime, the
LDCs are allowed to export at the internal EU price. In the liberalised
world, the EU internal price will coincide with the liberalised world
price, which will settle below the current EU internal price. The LDCs
that are unable to export at the current EU internal price will surely not
be able to export at that lower, liberalised price.

The danger that the LDCs will lose from the rich country liberalisation
is even greater than suggested by these arguments. In anticipation of the
liberalisation under the Doha Round, developed countries are already
raising non-tariff barriers in the form of sanitary and phytosanitary (SPS)
measures. This process will escalate in the post-Doha world. And in so far
as the poorest countries are at a much greater disadvantage than their
counterparts in the Cairns Group and the developed world at satisfying the
higher SPS standards, they are in danger of losing even some of their
existing market access.

How do we then explain the ruckus at Cancun over the cotton subsidies,
since some of the poorest countries demanded their end? The answer is that
this case is consistent with the popular rhetoric of the rich country
subsidies hurting the poor countries but it is also an exception. This is
a product in which the EU does not have major producer interests to
protect so that its internal price is close to the world price. Therefore,
the EBA is not much help in this product. But even here a country like
Bangladesh, which imports cotton, will lose from the hike in the cotton
price.

Some analysts assert that even if the importer countries as a whole
lose, the poor farmers within them would benefit from increased prices.
But the better policy to achieve this outcome is to impose countervailing
duties on the currently subsidised imports. Yet, astonishingly, no one
from the multilateral institutions or Oxfam has made that recommendation.

Simplistic assertions that rich country protection hurts the poorest
countries may make one popular with the poorly informed but they do no
good to the poor themselves. For, when the poor countries eventually find
out that the promised gains from liberalisation did not materialise, they
will only be disenchanted with future liberalisation. Moreover, without
recognition of the detrimental effects, we will fail to design
compensation mechanisms and safety nets necessary to smooth out the
adjustment to the more liberal regime in the poor countries. We will also
fail to assist them in the acquisition of capacity to satisfy the SPS
measures that are turning into the new frontier of developed country
protectionism.